Daily Market Pulse

Dollar falls as dovish remarks linger and morale restores


The U.S. dollar index, a tool used to assess the performance of the greenback against a basket of six major currencies, remained subdued, taking a breather during yesterday's trading session and extending losses early Tuesday as it is testing lows from mid-August. The upbeat mood in the global markets and the extended reaction to the Fed’s dovishness weigh on the greenback as U.S. treasury yields continue to edge lower. Fed policymakers are committed to still deploying the same amount of stimulus into the economy, which continues providing a tailwind for equities with the S&P 500 reaching 4,537, and Nasdaq reaching 15,286. The Chairman of the Fed seems to be in no rush to withdraw stimulus in its upcoming Monetary policy meeting, although during the Jackson Hole Symposium we witnessed several of his FOMC colleagues taking a hawkish stance on its approach to tapering, meaning that pressure is mounting for Powell among his peers. Nonfarm payrolls and job reports later on the week will be an instrumental driver in the tapering puzzle, especially if figures fail to impress which would pretty much write off tapering from the realms of possibility for September. Coming up, U.S. morale indicators are to be released with Consumer Confidence for August and Chicago Purchasing Managers’ Index. The latter released its worst-performing figure in over a decade last month, and we expect a pickup amid restoring sentiment from market participants. Cases in the U.S. continue to rise, although it is at a decelerating pace while inoculation has picked up amid the FDA’s approval of the Pfizer vaccine. Globally, infections are flattening but a new worrying variant was reported in South Africa. 


The EUR sustained gains during yesterday’s trading session and managed to capitalize further gains during the early trading hours of today. The broader risk-on sentiment seems to underpin the bloc’s currency ahead of the preliminary reading of the Eurozone Consumer Price Index. Despite the cheerful mood, risks remain the latest as the bullish run might be challenged by adverse developments in Afghanistan, China, or even poor NFP figures later on in the week. Additionally, comments from European Central Bank (ECB) policymakers suggesting an extension of easy monetary policies offer an extra boost to the EUR. The Governing Council members Robert Holzmann and Francois Villeroy de Galhau rejected reflation fears. Hence, today’s Eurozone inflation data is expected to double from 0.7% annualized to 1.5% annualized. European Optimism is underpinned by French and German data, with upbeat French inflation figures posting 2.4% annualized vs 2.1% expected, in addition to Gross Domestic product in Q2 beating expectation set at 0.9% while releases showed growth at 1.1% quarterly. German unemployment exceeded expectations, posting 5.5% vs 5.6% previously released and anticipated. 


The British Pound consolidated gains against the dollar, closing 0.19% higher on Monday's session amid a sustained broader risk-on mood. Dovish remarks from Chair Powell on Friday extend its effects over a weaker dollar while Sterling continues to struggle with Covid and Brexit jitters. Pessimism continues to weigh on the British chaos surrounding the EU-UK relationship over the northern Ireland protocol, while shortages over the coming festive season keeps British homes cautious. Data-wise, the Bank of England released a Consumer Credit reading which failed to impress market participants, while Mortgage approval seems to have slowed down too over the month of July.  


The Japanese Yen retraced 0.12% during yesterday's trading session, remaining between the 3-week range as the safe-haven appeal weighs on the Yen amid bolstering optimism in the global markets. The dovish remarks from U.S. policymakers keep the cheerful mood going as riskier assets enjoy from the extended stimulus. However, it is worth noting that despite the Yen depreciation, the greenback remains weak amid the extended effects of dovish remarks from Chairman Powell.  Investors remain worried about the potential fallout from the fast-spreading Delta variant. Concerns were fielded by disappointing Chinese data released during the early hours of today. Even if this drive flows into JPY, the greenbacks fundamentals continue to benefit more from the downbeat sentiment around the Japanese Yen.  


The Loonie advanced 0.09% against the dollar amid broader risk-on sentiment in the global market following dovish remarks from Fed officials suggesting no imminent tapering fueling risky assets in the aftermath. The pair now test the two-week lows after the Loonie snapped three consecutive days of recording gains. The West Texas Intermediate (WTI) edges toward USD 70 per barrel, paring losses seen earlier this month, as global inflation readings keep posting upbeat results, while China recovers from its latest round of lockdown amid Delta variant while cases in the U.S. continue to ease progressively, decelerating the pace and improving prospects of commodities demand. Canada released its Gross Domestic Product data for June and the entire second quarter, and it is expected to report an annualized growth of 2.5%.  


The Mexican Peso recorded gains against the dollar, capitalizing 0.24% during yesterday's trading session amid a broader risk-on sentiment and a pick-up on oil prices which underpinned the commodity-linked Peso. In Mexico, investors will scour the Central Bank’s quarterly inflation report which will provide detailed insights over policymakers' inflationary expectations and hint at potential upcoming hikes in order to ease down the effect of price action. Moreover, Mexico Covid cases keep market participants cautious, as while Covid flattening across the region is sustained, Mexico seems to be lagging to control its latest outburst. 


The Chinese Yuan remained relatively unchanged against the dollar during yesterday's trading session amid broader dollar weakness and disappointing Chinese data. Chinese Non-manufacturing PMI reading failed to reach the 50 points marking expansion over the reading, releasing a poor 47.5 while expectations were set at 52.8. Additionally, NBS manufacturing PMI followed a similar trend, providing 50.1 vs 50.2 expected. Amidst the broader dollar weakness and Chinese data failing to impress, the currencies are offsetting movements as the market remains cautious and is uncertain of direction. 


The Brazilian Real sustained gains and advanced 0.34% on Monday's session as optimism kept the dollar on the back foot while riskier assets enjoyed momentum. Bolsonaro's remarks continue to generate unrest in the Brazilian market, as although he highlighted that he doesn’t want or provoke institutional ruptures, he flagged that everything has a limit. He also said that he sees only three possible outcomes for him in the 2022 elections: to be a winner, to be arrested, or to be killed. Moreover, the water crisis brings additional risk lingering around the country and several opportunities have been mentioned by Guedes and Bolsonaro to downplay the risks of power rationing and/or blackouts.


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